Knight Frank has downgraded its near-term UK house price forecasts whilst raising longer-term projections, citing current economic uncertainty alongside more optimistic assumptions about future government policy.
The estate agency now expects UK house price growth of 1.5% in 2026, followed by 3% in 2027 and 4% in 2028. This represents a downgrade from its September forecast, which projected 3% growth in 2026 and 4% in 2027.
Economic uncertainty weighs on market
Knight Frank identified higher mortgage rates, softer buyer sentiment and Middle East conflict-related uncertainty as creating a ‘triple headwind’ for the market. Five-year swap rates, which lenders use to price fixed-rate mortgages, were trading at around 4% this week compared to just under 3.5% before the conflict started, though down from 4.3% in March.
Economic indicators have shown mixed signals. Halifax reported annual house price growth slowing to 0.8% in March from 1.2%, whilst Nationwide recorded an increase to 2.1% from 0.9% over the same period. Inflation is estimated to have risen to 3.3% in March, driven by higher energy costs, although underlying inflation came in lower than expected at 3.1%.
Tom Bill, head of UK residential research at Knight Frank, said: ‘We will only know the full impact in coming months, which depends on how long the war lasts and to what extent it escalates.’
Bill noted that any effect on house prices would be mitigated by the fact more residential property is owned outright (36%) than with a mortgage (29%) in England.
Political change underpins longer-term outlook
Despite near-term caution, Knight Frank has raised its longer-term forecasts on the assumption of a new government taking office in 2029. Bill explained that current polling suggests policy will be shaped by a stronger instinct for lower taxes and tighter control over government spending.
‘Such an approach has the potential to put downwards pressure on government borrowing costs and improve affordability in the housing market,’ Bill said. The firm believes a change in political direction will underpin annual house price growth of more than 5% in mainstream and prime markets in 2030.
Rental market pressures persist
Knight Frank has marginally lowered its rental forecasts, but expects upwards pressure on rents to persist following the introduction of the Renters’ Rights Act on 1 May. The new rules raise risks for landlords around repossessing or selling properties, setting rents and guaranteeing rental income.
Bill said: ‘These additional risks will require extra reward and put upwards pressure on rents. This may be exacerbated by tighter supply as more landlords leave the sector once the new rules are in force.’
The firm expects 3.5% annual growth in prime central and outer London this year, up from current respective rates of 1.2% and 2.8%. Rental activity is also expected to benefit in the short-term as demand moves across from the sales market due to higher borrowing costs.
Activity has been supported to some extent by people looking to temporarily move back to London from the Middle East, according to the firm, though broader concerns about rental reforms continue to shape market dynamics.
Knight Frank acknowledged that making predictions currently comes with a particularly long list of caveats, including uncertainty over how the government will respond to economic shocks and potential tax speculation ahead of the autumn Budget.
